Regulatory Pitfalls of which Most Nonprofits are Unaware
There are numerous regulatory pitfalls concerning sales and use tax, of which your nonprofit may be unaware. Here are just a few:
- Raffle tickets are not tax deductible.
- If nonprofits don’t withhold taxes on prizes, they are required to pay the taxes themselves.
- The cost of special event tickets is not 100% deductible if guests receive something in return (dinner, golf, etc.). The nonprofit is required to notify attendees of the value of the nontax-deductible portion of the ticket.
- If the nonprofit gives volunteers gift cards or cash, they cease being considered volunteers and become employees.
- There are several tax forms that the organization is required to fill out upon receipt of donated cars; the IRS has strict qualifiers for these types of donations.
However, the following are NOT subject to sales or use tax:
Posted in Federal Regulations, Tax Deductable Issues
- The gifting of merchandise for a true donation: an amount someone gives your organization without expecting to receive merchandise of equal value in return.
- Sales of tickets for concerts, movies, plays, shows, and similar events when food and meals are not included in the ticket price.
- Sales of tickets for game booths when prizes are not guaranteed to every ticket purchaser.
- The sale of travel, home rentals, guide services, personal services, tutoring, and other things of value that are not physical products.
- Sales of gift cards, gift certificates, and coupon books.
- Membership drives and other fundraising activities that do not involve the exchange of merchandise or that include merchandise premiums of a much lower value than the donation or membership amount.
- Sales of advertising that does not involve exchanges of merchandise or goods.
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